The impact of the US-Iran conflict has driven India's Wholesale Price Index (WPI) inflation to a sharp rise of 9.68% in May, up from 8.26% in April. This marks the first WPI data release under the revised base year series, which now uses 2022-23 as the base year instead of the earlier 2011-12 series, as announced by the Commerce and Industry Ministry on Monday.
Key Drivers of Wholesale Inflation
Wholesale inflation accelerated primarily due to higher prices of fuel, power, manufactured goods, and food items, which increased input costs across the economy. The fuel and power segment saw inflation surge to 30.33% in May from 24.89% in April. Crude petroleum prices were a major contributor, with inflation in this category rising to 61.51% compared to 56.31% in the previous month.
Impact of Global Conflict
The surge in wholesale inflation underscores the economic impact of the West Asia conflict and disruptions in shipping through the Strait of Hormuz, a critical route for India's crude oil imports. Higher energy costs have filtered through to food prices, adding to broader inflationary pressures. Food article inflation increased to 3.60% in May from 2.43% in April, while inflation in manufactured products climbed to 7.48% from 6.68%.
Retail Inflation and RBI's Response
Retail inflation, measured by the Consumer Price Index (CPI), also rose to a 16-month peak of 3.93% in May, compared to 3.48% in April. The Reserve Bank of India (RBI), which primarily relies on CPI inflation for monetary policy, is tasked with maintaining headline inflation at 4% with a tolerance band of 2 percentage points. Earlier this month, the RBI raised its inflation forecast for the current financial year to 5.1% from 4.6%, citing rising input costs and the transmission of elevated global energy prices into domestic fuel rates.
Fuel Price Hikes
Global crude oil strength has already translated into higher retail fuel costs, with petrol and diesel prices increasing by Rs 7.50 per litre during the latter half of May. This has further strained household budgets and added to inflationary concerns.
